Citing a backlog of at least 400 proposed technical amendments dating back to 2002 and at least 250 comfort letters issued by the Department of Finance going back to 1998, Canada's Auditor General has questioned the government's effectiveness in identifying, developing, interpreting and applying technical amendments which clarify the Income Tax Act but do not change tax policy. In her Fall Report to Parliament released on November 3, 2009, the Auditor General noted that the last income tax technical bill was passed in 2001, and concluded that priority issues addressed in comfort letters are also not being legislated on a timely basis. The audit also found that the Canada Revenue Agency (CRA) has not met its own time targets for issuing advance income tax rulings to taxpayers over the last three years, and has not effectively notified taxpayers when technical information provided in its interpretation bulletins no longer reflects current CRA policy.
The report indicates that Finance and the CRA have agreed with all of the Auditor General's recommendations to improve their performance in these areas. Of particular note is the CRA's indication that during 2010 it will be evaluating the option of cancelling its inventory of interpretation bulletins, subject to prior consultation with practitioners.
The legislative process for technical income tax amendments has likely suffered because of several consecutive minority governments. Among the outstanding technical amendments are those relating to the treatment of foreign affiliates of Canadian taxpayers which were originally introduced several years ago. These proposed amendments have gone through several refinements, requiring taxpayers to consider several different tax scenarios. It is hoped that the government's commitment to improving its process of legislating and applying technical tax amendments will remedy the backlog and provide necessary clarity to taxpayers. To view Chapter 3 of the Auditor General's Report on income tax legislation, please click here.
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